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The Honorable Eugene A. Ludwig
Provide similar information where occ merely has required
4. As requested (Tr. pp. 45, 49), please provide information on
how many instances and involving what progran areas or violations (i.e., fraud against customers, insider trading, etc.) occ has made enforcement referrals to the SEC. Please explain your policy in this area and provide us with copies
of any written guidelines. 5. As requested (Tr. p. 63), please advise the Subcommittee how
many banks have a suitability program, what these programs
program, and, if not, how many have done so. 6.a. You testified (Tr. p. 112) that 12 USC S 1818 authorized occ
to enforce the federal securities laws and the rules and regulations thereunder. Please support and explain that statement. In particular, please explain how violations of the federal securities laws by a bank, its securities subsidiary, or a third party broker-dealer can be considered "unsafe and unsound banking practices." Also, please advise whether any court has ever considered 12 USC 1818 to reach violations of the federal securities laws and the rules and
regulations thereunder. b. As requested (Tr. p. 137), please submit a report on all the
actions taken by occ against banks or their employees for
The Honorable Eugene A. Ludwig
compare and contrast your investor protection enforcement
program with the program administered by the sec.
147), copies of the specific rules that occ has with regard
OCC's view on Simpson v. Mellon Bank. NA (ED. Pa. 1993). d. SEC enforcement actions are made public by the preparation
of litigation releases (sample copy enclosed) which are
If you have no such program, please so state. How can a potential customer find out if there is a pattern of examiner requests that a particular bank or its employees
"change their practices" (Tr. p. 34) in this area? 7. As requested (Tr. p. 134), please submit a report on the
progress of the occ and SEC in coordinating your respective
The Honorable Eugene A. Ludwig
If you have any questions about this request, please contact Consuela M. Washington of the staff at (202) 225-3147. Thank you for your cooperation and assistance with the work of the Subcommittee.
John D. Dingell
Chairman Subcommittee on Oversight
The Honorable Dan Schaefer
Thank you for your letter of March 17, 1994, in which you requested additional information on issues arising from the proposed merger between the Dreyfus Corporation (Dreyfus) and Mellon Bank Corporation. We have endeavored to provide you with the requested information.
How does 12 C.F.R. Part 9 ("Part 9") protect investors in a mutual fund or purchasers of other securities in a bank? Has the OCC ever used its 12 C.F.R. Part 9 ("Part 9") authority to protect investors in a mutual fund or purchasers of other securities in a bank?
Part 9 protects investors as well as trust customers who receive investment advice and purchase mutual funds or other securities from a national bank or its employees. National banks that provide investment advice must first apply to and receive authorization from the OCC to exercise fiduciary powers pursuant to 12 U.S.C. & 92a. See, e.g., Decision of the Comptroller of the Currency Concerning an Application by American National Bank, Austin, Texas, to Establish an Operating Subsidiary to provide Investment Advice (1983), reprinted in (1983 - 1984 Transfer Binder) Fed. Banking L. Rep. (CCH) 99,732; Interpretive Letter No. 367 (1986), reprinted in (1985 - 1987 Transfer Binder) Fed. Banking L. Rep. (CCH)
Part 9 contains provisions governing the treatment of funds awaiting investment or distribution, the investment of funds held as fiduciary, prohibitions against self-dealing, and compensation of bank fiduciaries. Part 9 requirements also apply to any investments made by a national bank trustee, including mutual fund investments, and prohibits self-dealing by fiduciaries. Bank trustees may not purchase proprietary or bank-advised mutual funds unless authorized by state law, trust instrument, court order, or consent, and only when appropriate for the account.
- 2. The OCC may take enforcement action against a national bank, its employees, or any institution-affiliated party' who violate the self-dealing or other relevant provisions of Part 9 when providing investment advice to customers. Although the OCC has not yet used Part 9 to bring a mutual fund-related formal enforcement action, the OCC has brought enforcement actions against national banks for improprieties in the administration of collective investment funds. For example, in 1989, the Comptroller revoked a national bank's trust powers when a trust officer purchased stock (in which the bank's president and a director had a conflicting interest) for the bank's common trust fund, in violation of the conflict of interest prohibition in 12 C.F.R. $ 9.12. In the Matter of Central National Bank of Mattoon, AA-EC-87-83 (1989). The Comptroller also found that the bank violated 12 C.F.R. 9 9.18 for its failure to value trust assets properly.
Please provide a list, with an explanation of the alleged wrongdoing and the sanction applied, of OCC enforcement actions where sanctions have been applied against banks or their employees in connection with mutual fund sales. Provide similar information where OCC merely has required the violators to change their practice.
As I stated during the March 3 hearing, the OCC has not initiated final, formal administrative action against national banks or national bank employees expressly in connection with mutual fund sales activities. The OCC, however, has undertaken significant steps to ensure that national bank mutual fund activities are conducted in accordance with applicable law and are protective of customer interests.
Where the OCC finds less significant compliance issues, we address them through examination criticisms, letters to bank boards, and other informal enforcement mechanisms. Where national banks fail to adequately respond to these criticisms, the OCC is committed to seeking all appropriate formal enforcement remedies. As stated in the our Securities Activities Enforcement Policy (Attachment A), the OCC believes that formal enforcement action is particularly appropriate to address cases involving customer abuse, fraud, and other deceptive or unfair practices in mutual fund or other securities sales. When pursuing formal enforcement actions, the OCC generally seeks remedies based on comparable SEC actions. Id.
Since January 1993, the OCC has reviewed the mutual fund activities of 250 community banks and approximately 75 bank holding companies, controlling 430 national banks. During
'Under federal banking law, the term "institution-affiliated party includes: 1) directors, officers, employees, controlling stockholders, or agents of an insured depository institution; 2) any other person who has filed a change in control notice; 3) shareholders, consultants, joint venture partners, or other persons who participate in conducting an insured depository institution's affairs; and 4) independent contractors, including attorneys and accountants. 12 U.S.C. § 1813(u).